No end to this food fight

Double-digit declines in fresh food prices are taking their toll on
Coles
as much as
Woolworths
but there is too much at stake for the two supermarket giants to back away from an aggressive campaign to grow market share.

Coles’s same-store food and liquor sales rose 2.7 per cent for the March quarter, the weakest rate of growth since the first quarter of 2009 and less than half the growth reported in the same period a year ago when it slashed house-brand milk prices.

Coles’s headline food and liquor sales for the third quarter were up 4.1 per cent to $6.1 billion, while Woolworths’s food and liquor sales rose 2.9 per cent to $9.4 billion.

On a same-store basis, which is the main measure of performance for retailers, Coles remains in the lead.

Wesfarmers boss
Richard Goyder
is going to have to work hard to stay there with Woolworths boss Grant O’Brien, who joined the company in October, shifting gears at the rival with ambitious plans for new stores.

Woolworths hopes Australians’ fickle loyalty towards supermarkets will help it win market share from Coles. Consumers are switching between Woolworths, Coles, Aldi and IGA with few remaining completely committed to one outlet.

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Coles has been working to stay ahead of the game by improving the value of its fresh and packaged groceries. Last week it unveiled a major revamp of flybuys, its consumer loyalty card program.

Subdued discretionary spending was highlighted by slower sales at Target and Bunnings although Kmart’s same store sales rose 1.6 per cent in the quarter as it builds market share. Kmart has been helped by an increase in floor space over the last year, partly because of the reopening of stores once closed due to flooding.

Price deflation remains the No. 1 enemy with Coles reporting a record 25 per cent reduction in prices for fresh produce in the quarter.

Both supermarket chains keen to promote the public perception they are doing consumers a favour by lowering grocery prices although some suppliers and competitors say prices of some goods such as sauces and salad dressings are rising selectively to protect margins.

Newcrest confirmed the market’s fears this morning, cutting gold and copper output guidance as unseasonally high rainfall hurt production at Cadia Valley.

Much of the bad news had been expected although Newcrest shares fell 4 per cent to a fresh 12-month low in early trade today.

The respected Smith, who now runs explosives group
Orica
, handed over the reins of Newcrest to
Greg Robinson
nine months. Most of
Lihir
’s current problems are not Robinson’s fault although he has a huge task ahead of him as the company struggles to deliver on promises made to shareholders when it acquired Lihir Gold for $10 billion.

The market has believed the company’s gold output guidance of up to 2.55 million ounces was too optimistic. Robinson has confirmed this, lowering the forecast to between 2.25 million ounces and 2.35 million ounces.